Published December 24, 2012

Luxury homes seen getting foreign boost

Market watchers expect them to return amid low interest rates and surplus liquidity

By Mindy Tan

[SINGAPORE] The return of foreign investors to the private residential market, coupled with the low interest rate environment and surplus liquidity, may help the luxury market to recover next year.

This, despite foreigner's share of purchases diving from 17.5 per cent last year to 6.2 per cent in November 2012, caveat records showed.

The decline in foreign purchases came after the implementation of an additional buyers' stamp duty (ABSD) in December last year, which slapped an additional 10 per cent buyers' stamp duty on foreigners.

Interestingly, purchases by Americans and Norwegians, who are exempt from the extra 10 per cent tax, got a boost this year.

"For the whole of Singapore, USA nationals bought a total of 126 private homes in Q1-Q3 2012, close to the total 129 homes purchased for the whole of 2011," said Chua Chor Hoon, DTZ's head of Asia Pacific Research.

"Similarly, there were more Norwegian purchasers this year. They bought a total of seven properties in Q1-Q3 2012, more than the five bought in 2011."

Said Savills Singapore research head Alan Cheong: "Notwithstanding last year's ABSD measures, foreign demand could be returning, particularly those from Malaysia and Thailand, where our company had concluded several high-value transactions in Sentosa and District 10."

"We believe that the overall percentage of overseas buyers in 2013 may go up to 25-27 per cent, from the present 22-23 per cent."

Even as foreign purchases (405 units) in the core central region (CCR) for the first three quarters of the year dipped to 29 per cent of the number purchased in 2011 (1,387 units), there has been a rise in purchases for properties in the prime areas, noted Ms Chua.

"As developers offer rebates for the 10 per cent ABSD payable by foreigners, and extended the same rebate to those who are not subject to the 10 per cent ABSD, this has resulted in a rise in purchases for properties in the prime areas," she said.

"For the first three quarters of 2012, local purchases in the CCR (2,109 units) were already 86 per cent of the number of units bought in 2011 (2,459 units) . . . Purchases by permanent residents in Q1-Q3 2012 (489 units) were 74 per cent of their total purchases in 2011 (665 units)."

Added Png Poh Soon, head of consultancy and research at Knight Frank Singapore: "The recent cooling measures are unlikely to dampen demand for luxury homes as cash-rich investors can afford higher upfront payment despite shorter loan tenures. Additionally, the rising unsold supply of prime residential properties could result in more competitively priced luxury homes to clear unsold inventory."

Buyers are also turning their attention towards city-fringe locations, or rest of central region (RCR), noted consultants.

"The narrowing price gap between the upper-end suburban and lower-end prime markets has led investors to rethink their options as the latter appear as better value for money. This could lead to a shift in demand towards more affordable prime district properties," suggested Ong Teck Hui, national director, research, at Jones Lang LaSalle (JLL).

Nicholas Mak, executive director, research and consultancy at SLP International, said that he expected the line between prices of city-fringe homes and well-located suburban homes to blur even further next year.

Citing data from the Singapore Real Estate Exchange (SRX), Lee Sze Teck, senior manager, training, research and consultancy at DWG, said: "According to SRX, the premium RCR commanded over OCR has been above 30 per cent in 2010 and reached a peak of 32.3 per cent in Q1 2011. But the faster pace of price increase in the OCR led to the narrowing in the price gap and this gap fell to a low of 25.4 per cent in Q2 2012.

"There could be more buying interest in the RCR in 2013. Already some projects in the RCR in Q2 2012 and Q3 2012 like Katong Regency, One Dusun Residences and Sky Green have seen strong take-up of their units during the launch period."

In the first 10 months of the year, 19,792 new homes were sold, smashing the previous record of 16,292 transactions in 2010 by a wide margin of 21 per cent, or 3,500 new homes.

Consultants concur that sales volumes are likely to dip next year, citing buyer fatigue.

"One of the reasons for the unusually high volume of over 6,500 new homes sold in Q1 2012 was the sale of units that are up to 50 sq m," noted Joseph Tan, executive director, residential, at CBRE.

"Some 1,200 such units were sold in Q1 2012, compared to around 600 units in other quarters, from projects like Parc Rosewood, Guillemard Suites and Watertown."

This resulted in the government putting a cap on the maximum number of units in non-landed private housing projects outside the Central Area based on an average area of 70 sq m.

Chia Siew Chuin, director of research and advisory at Colliers International, said that she expected prices to stay flat, and at most, correct marginally by some 5 per cent in 2013.

"Prices are already at record levels and there is mounting resistance to further upside," she said.

Indeed, this has pushed some interest across the Causeway.

"Some Singaporeans are turning to less-expensive alternatives in the new development areas of Iskandar. These Singaporean homebuyers purchase Johor Bahru homes with a view towards capital appreciation or as an alternative retirement residence," she said.

Knight Frank's Mr Png said that he expected total developers' sales volume to soften in 2013 to 15,000-18,000 units, but remain at healthy levels. "We foresee a stabilisation of overall home prices for 2013 as homebuyers re-assess their budgets and monitor price trends of newly launched and resale properties. We expect a marginal price increase of 1-1.5 per cent for non-landed private homes in 2013. The ample liquidity in the financial system leading to low interest rates and stable income growth of homebuyers would provide support to the residential prices at least for the near to medium term."

Savills Singapore's Mr Cheong said that he expected overall private residential prices to increase by up to 10 per cent next year, with mass-market, non-landed property prices rising 10-15 per cent and luxury properties going up by 3-5 per cent.

"Sharply rising land costs, strong developer balance sheets and low interest rates should all conspire to make 2013 another halcyon year for the industry," he said.